Real Estate Investing For Beginners

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According to data, real estate flipping reached a 9 year high in 2019. However, the analysis also shows that returns are shrinking

What does this mean for real estate investing for beginners, and is it still feasible to enter the market? In short, yes it can be very feasible. However, you need to make informed decisions. 

Otherwise, you may end up losing rather than making money. 

So, start right here by reading on to find out the ABC’s of real estate investing. With knowledge and research under your belt, you will be equipped to dip your toes in real estate investing without biting off more than you can chew. 

Why Real Estate Investing for Beginners Can Be an Opportunity

First up, let us take a look at why real estate investing for beginners can be a lucrative opportunity, and not as scary as it sounds! 

The reason for this is that with real estate, you can use leverage to invest in an asset/opportunity that you would not have been able to by paying upfront. 

The traditional downpayment amount for mortgages used to be 20 percent. However, this has changed, and in some cases, it is possible to put down as little as 5 percent on a property. In either case, this opens up real estate investment opportunities that many beginners would not otherwise have access to. 

Another reason why real estate can be a good investment for beginners is that it is very tangible. Unlike the case with intangible investment scams—as long as the transfer goes smoothly, nobody can abscond with your investment. Something that can be a distinct danger in private investments and schemes. 

The Different Types of Real Estate Investment Income

The first thing you need to know about when learning how to start investing in real estate is the different types of income that can be generated. 

Appreciation Income

The first is appreciation income. This is the value that you gain when a property that you are holding becomes worth more than what you bought it for. If you purchased real estate in a favorable buyer’s market, then it is likely that you will experience this.

However, if you bought when prices were at a premium, and had to sell when prices were down, you could instead lose money. 

Rental Income

The other income type that can stem from real estate is rental income. This is any money coming in from the rental of properties. 

While rental income might sound like a convenient source of hands-free passive, in reality, this money is generally used for mortgages, property repairs, property management, insurance, etc. 

In most cases, it is only after a property or properties have been paid off that rental proceeds can become a true stream of passive income. However, generally, rental income can help substantially with bond payments and is not something to be disregarded. 

REIT Income

REIT income is technically interest. REITs are real estate investment trusts. These trusts allow investors to gain portfolio exposure to real estate investments without any of the hands-on decision making and management that is required by regular real estate investment. 

With REITs, you will not be able to take advantage of leverage. However, you will be able to receive interest on your investments with relatively low levels of risk. 

What to Watch out For

One of the most important things when learning how to start real estate investing is knowing what to watch out for. 

Some of these common areas of risk are:

Market Slumps

If the market is booming, it can be hard to foretell when a property slump is coming. Property slumps can often be particular to an area, and so are often difficult to forecast.

However, it is always a good idea to analyze the historical property prices in the area you wish to buy in. Try to see if they are any patterns. If so, are prices at a peak, at a low, or somewhere in between.

Additionally, on what time frame are these price cycles? This will give you an indication of whether or not you will see a return on your investment, and within what time frame. 

Rental Pitfalls

When buying real estate, another is to look into thoroughly is potential rental pitfalls. 

Newcomers to real estate investing are often eager to see that after calculations, the rental they can get for a property will far outstrip the mortgage the need to pay on it. 

Old hands, however, know that even with a comfortable rental/mortgage payment margin, issues can arrise. 

For example, if a tenant moves out, it can often take a few months to get the property back on the market. In this time, the mortgage payments still need to be made, and you likely had to do some repairs. 

To guard against this situation, it is always a good idea to check local vacancy rates in the area you are looking to buy in. You can do this by checking census data, asking local real estate agents and property managers (like ourselves). 

High Mortgage Interest Rates

One of the advantages of real estate investing is that it allows you to use leverage to realize the opportunity. Something that other investments do not. 

However, with leverage, it is vital that you are cautious and do not overextend yourself.

For one, investing in real estate with a small deposit will result in higher mortgage payments. If the rental on the property not enough to cover these and maintenance costs, and property management fees—you could end up paying in more than you expected. 

If this situation is not sustainable, you could be forced to sell the property at a loss, or even lose it entirely in dire circumstance. 

Is Real Estate Investing for You?

Now that you have read this guide on real estate investing for beginners, do you feel that the market is for you?

While there are some risks involved, as well as hands-on engagement with your asset, real estate can prove a valuable vehicle for building wealth. As said by the great Andrew Carnegie, “90 percent of the world’s millionaires become so through owning real estate.”

What is more, with the right property managers at your disposal, much of the arduous work of property ownership can be taken off your hands. If you want your real estate assets to run like a well-oiled machine, then contact us. We offer full-service property management in DC, Northern Virginia, and parts of Maryland, as well as free rental analysis. 

Browse our services today, and let us give you peace in your mind property ownership. 

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Enhanced Reporting

Your portal includes a selection of extremely useful reports. Reports are available in the “Reports” section, and are distinct from the financial statements. Unlike financial statements which are static records, Reports are dynamic real-time records that will update with current data every time you view them. 

Scroll down to learn more about Reports:

Navigate to the "Reports" module in your portal:

  • Keep in mind, these reports are dynamic records. They will refresh to display current information every time you view them. 

Enhanced Rent Roll Report:

  • The Enhanced Rent Roll Report will show the rent amount, last payment date, move-in date, lease expiration date, and security deposit amount for each of your tenants. 
  • It will also show a portfolio summary with occupancy percentage, vacancy loss, and more!

Unit Comparison Report:

  • If you own multiple units (or buildings) with Nomadic, you’ll get access to the Unit Comparison Report. 
  • This report enables you to quickly compare financial performance between your units at a glance without toggling between individual reports. 

Income Statement Month-Over-Month:

  • The Income Statement Detail – Monthly Report serves as a month-over-month record of portfolio performance. You’ll see itemized income and expense categories and can track monthly. This report will update with fresh data every time you view it. 

Financial Statements

Financial statements will be published to your portal on a monthly basis. The statements are found in your Documents library, and provide a historical record of all financial performance. The statements serve as a snapshot of financial performance over a given period, and are static documents (unlike Reports, the statements do not update/change in real-time). 

Scroll down for more info about the Financial Statements in your Documents library:

The Documents area contains monthly financial statements:

  • The statements in the Documents are are static documents. They are posted to the portal once a month to serve as a historical record of financial performance. 

Download a statement to see month and YTD financials:

You'll also find a month-over-month operating statement:

Portal Communication Tool

You can use your owner portal to communicate with our team. Any messages you send through the portal will go straight to your Account Manager. When we reply, you’ll get an email notification and you’ll also see the message in your portal next time you log in. 

Here’s an overview of using the communication platform:

Click "Communications" and navigate to "Conversations":

  • The communications module will contain a record of all messages that you create through the portal. 

Click the "New Message" button and send your message:

Responses will show up in the conversation ticket:

  • You’ll get an email notification whenever you get a response, and you’ll also see the message in your portal next time you log in. 

You can reply in-line using the comment box:

Each conversation will be logged in its entirety:

Understanding the Ledger

Your portal includes a ledger with all transactions. The ledger is populated with data in real-time as transactions flow through our accounting software. Much of this information is also available in the Reports area, as well as the Statements in your Documents library, but the ledger is the most comprehensive resource for diving into the details. 

Please scroll through the sections below to get a better understanding of how to interpret the ledger. 

By default, transactions are sorted chronologically:

  • The date reflected in the lefthand column is the actual transaction date, not the “bill date”. This is the date the transaction was actually processed. 

If you have multiple properties with Nomadic, you'll see the address for each transaction in the "Location" column:

  • You can filter the ledger to look at just one property, all properties, or specific sets of properties. 
  • If you only have one property with us, you’ll just see the ledger for that property. 

The Description column displays the transaction type:

  • BILL: this is an expense transaction, such as for repair costs or management fees.
  • CHARGE: this is a transaction  billed to the tenant, most typically a rent payment. 
  • NACHA EXPORT: this is a credit we processed to your distribution account. This type of transaction is how you get paid! 

The Amount column shows the dollar value of each transaction:

  • Positive Amounts: if an amount is positive, it reflects a transaction that is payable to you. Typically, this will be a rent payment that we collected from your tenants. On occasion, a positive number could also signify a journal entry or credit adjustment. 
  • Negative Amounts:  if an amount is negative, this is a transaction that is either payable to Nomadic or is an amount that has already been paid to you. Typically this will be for repair costs or management/leasing fees. Owner draws (net distributions into your checking/savings account) also reflect as negative amounts, since they have already been paid to you. 

The Account Balance column shows a sum of positive/negative transactions at a given point in time:

  • Account Balance should always equal zero after a net distribution has been processed. When the balance is zero, this means that all expenses have been paid and you’ve received the remainder as net operating income, leaving a balance of zero (meaning: no one is due any money, as all funds have been distributed appropriately). 

Navigating the Propertyware Owner Portal

Your portal includes some extremely useful features that help you understand your property’s financial performance at a new level, with real-time transparency into every transaction.

Scroll through the snapshots below for an overview of portal navigation! If you need more help or have specific questions about using the portal, you can reach out to your Account Manager any time for a screen share. 

You can filter all info by date range or property:

View a snapshot of income and expenses on your dashboard:

See every transaction in real-time on your ledger:

Statements and forms will be posted to your documents library:

View a suite of real-time financial reports:

See a running list of all bills, and drill down for more detail:

Under Bill Details, you'll find dates/descriptions/amounts and more:

You can also communicate with your Account Manager through the portal:

How do net distributions work?

Net distributions keep your accounting clean and simple. Each month we’ll collect rent from the tenants, deduct any repair expenses for the previous month and any management/leasing fees for the current month, and credit the remaining net operating income to your account. 

You’ll receive a statement via email each time a net distribution is processed, and can view all transaction details in your Propertyware owner portal.